Chart 48 Breakdown of assets (including credit claims) put forward as collateral by asset type

(percentages; annual averages) central government securities regional government securities uncovered bank bonds covered bank bonds corporate bonds asset-backed securities other marketable assets non-marketable assets 100 90 80 70 60 50 40 30 20 10 0 2005 Source: ECB. 2006 2007 2008 2009 2010 100 90 80 70 60 50 40 30 20 10 0

in 2009 to 13% in 2010. The asset classes which were temporarily eligible until the end of 2010 accounted for around 1% of the total marketable collateral put forward at the end of 2010. RISK MANAGEMENT ISSUES The Eurosystem mitigates the risk of a counterparty default in a Eurosystem credit operation by requiring counterparties to submit adequate collateral. However, the Eurosystem is still exposed to a number of nancial risks if a counterparty defaults, including credit, market and liquidity risk. In addition, the Eurosystem is exposed to currency risk in the context of liquidity-providing operations in foreign currencies against euro-denominated collateral, whenever these are conducted. In order to reduce all these risks to acceptable levels, the Eurosystem maintains high credit standards for assets accepted as collateral, valuates collateral on a daily basis and applies appropriate risk control measures. The establishment of the new Risk Management Committee has further contributed to the enhancement of the Eurosystems risk management framework (see also Sections 1.5 and 1.6 of Chapter 10). As a matter of prudence, the Eurosystem has established a buffer against potential shortfalls resulting from the eventual resolution of collateral received from defaulted counterparties. The level of the buffer is reviewed annually, pending the eventual disposal of the collateral and in line with the prospect of recovery. More generally, nancial risks in credit operations are quantied and regularly reported to the ECBs decision-making bodies. In 2010 the ECB made a number of adjustments to its eligibility criteria and risk control framework. The Governing Council decided to keep the minimum credit threshold for marketable and non-marketable assets in the Eurosystem collateral framework at investmentgrade level (i.e. BBB-/Baa3) beyond the end of 2010, except in the case of asset-backed securities. As a consequence of this decision, the ECB announced on 8 April 2010 and published on 28 July 2010 a new schedule which duly

with the Eurosystem as they did in response to the nancial market turbulence (see Chart 47). The share of deposited collateral not used to cover credit from monetary policy operations therefore increased to signicantly higher levels than in the years before. This suggests that a shortage of collateral has not been a systemic constraint on the Eurosystems counterparties at the aggregate level. As regards the composition of collateral put forward (see Chart 48), the average share of asset-backed securities slightly increased from 23% in 2009 to 24% in 2010, thereby becoming the largest class of asset put forward as collateral with the Eurosystem, while the overall amount submitted remained stable. Uncovered bank bonds further decreased to 21% of the collateral put forward in 2010. Non-marketable assets gained further importance, with their share rising from 14% in 2009 to 18% in 2010. In addition, also owing to the sovereign debt crisis in some euro area countries, the average share of central government bonds further increased from 11%

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ECB Annual Report 2010